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The Executive view of general insurance in Asia: It's happening. Belt up for bigger changes

Source: Asia Insurance Review | Jul 2017

Asia Regulation Risk Management

The growth lure of Asia, cyber panic, disruptive forces and technology-driven innovation and the need to spur risk management awareness were some of the hot issues at Asia Insurance Review’s Executive Roundtable on general insurance. Held in Singapore, it offers a regional perspective of the issues involved in the lead up to the International Insurance Society‘s Global Insurance Forum this month.
By Chia Wan Fen
 
 
Asia on the world stage
Looking at the issue of whether Asia’s insurance industry had “come of age” on its own on the world stage, the group felt that Asia was certainly making an impact including being among the fastest growing in the insurance world.
 
Diverse economies pose challenges
Asia is not one economy, not one insurance market and not one culture. Singapore and Hong Kong are already mature insurance markets, while Myanmar “hasn’t even really emerged yet”, said MSIG Singapore CEO Michael Gourlay. Meanwhile, China’s insurance market is already dominating, with India coming up close behind. 
 
   Everybody wants to be in Asia, and those players who have been in the region for a long time have been very fortunate as the dominant economies were growing until relatively recently. “It’s only in the last year or two that we’ve had to really get smarter and agile and fight for our market share,” he said. “In the past, broad-based growth was constant. That’s the change we have to get used to. You no longer expect Asia to rise and continue to grow as one.” 
 
   The challenges that made Asia different from other developed markets do provide a “wind at our back” given the still-present underlying growth of its economies, and ongoing development of new infrastructure, said Mr Mark Lingafelter, Asia Pacific Managing Director, QBE. But the level of competition is often more intense than in the more developed markets. So despite the growth, he finds that Asian markets can create a significant challenge to earn an appropriate return.
 
   Mr Mark Mitchell, Regional CEO Asia, Allianz Global Corporate & Specialty, believes that the old model of hard and soft markets no longer prevails and insurers have to focus on core competencies to offer a valuable differentiated service. “Hyper-competition has become the new normal and we have to focus on areas we can influence directly in our service offering rather than on challenges of soft pricing.” 
 
Rise of regional hubs and global players
Mr Mark Newman, CEO of Sompo Canopius APAC and MENA, would still pick Asia for growth and opportunity for longer term development over anywhere else. He warned that the growth opportunities would not be linear as “the buying behaviour will be driven post-event and the attitude to risk will mature”.
 
   Noting the emergence of domestic carriers in Asia looking to internationalise and become global players, and the increase in regional pool of capital, startups and new businesses, he said: “Many of the ‘super-groups’ of the future in our industry will continue to come from this region, whether Chinese, Japanese, Korean or Indian.” 
 
   Asia has definitely developed in terms of expertise and talent in its offering, with significant hubs now such as Singapore, said Lloyd’s Singapore Country Manager Angela Kelly. The differences in the markets and the varying levels at which they are maturing provide a rich environment for innovation. Citing cyber as good example, she said: “Clients recognise that they don’t have to go too far from Asia to get all of the capacity they need.”
 
Customers and disruptive innovation
On the issue of disruptive innovation, a phenomenon causing waves of change not just to Asia but the global market, there was an intensive discussion. There was a general feeling that insurance was ripe for disruption in varying degrees despite being a stodgy industry that is still extensively regulated.
 
   Mr Michael Garrison, Senior Vice-President of Asia Pacific, Allied World Global Markets, noted that insurance can be considered the “technological dinosaur” of financial services, slower to respond to change than others within the sector, such as the banking industry, with Asia in particular lagging well behind. He noted that there are clear opportunities to automate back-end operational and claims processes, but the bigger challenge is on the client-facing side of the business, where insurers need to look at how they can deploy technology to evolve the way they distribute their products. 
 
The changing role of agents
Many in Asia still operate an agency force model, but it is a breed which he sees as shifting. Agents are moving from pure insurance to a broader financial adviser role, but with their very existence under threat from digital systems that can reach consumers directly, they need to consider different tech solutions. 
 
   “Although people in Asia still like doing business face-to-face, the new generation is increasingly tech savvy and it’s important to move with the times,” he said. “From my standpoint, investing in technology is our no. 1 strategic initiative.” 
 
Digitalisation across product fulfilment
Digitalisation has not progressed enough, agreed Mr Gourlay. Many companies who claim to be “digital insurers” start being digital in sales and payment gateways and then it stops – as soon as the client has a claim, he would have to call the claims office and do everything analogue again – insurers are starting to embrace digital but have a long way to go. “I believe that to say an insurer is really digital, the whole fulfilment of the product must be done digitally,” he said.
 
Doing business on their terms
Platforms have to be changed constantly as customers are changing too. They expect insurance to be done on their terms. “We used to tell our customers how to deal with us. Now they will tell us how to build our product, which channels they will use, what time of day they will deal with us. In future, products will be consumed digitally like a utility, not an annual policy – you’ll ‘turn on’ your insurance when you need it,” Mr Gourlay said.
 
Payments and claims critical to customer experience
For banks, the game changer would be the ability to make payments to the policyholder immediately for products coming on-stream such as travel, said Mr Benjamin Yeo, Managing Director, Financial Institutions Group, DBS Bank, who hosted the Roundtable at DBS’ spanking premises at the Marina Bay Financial Centre. Calling it a “new generation of insurance”, he said banking services providers are working hard to embed that capability as part of the insurer claims processing flow for the ideal situation: “For example, in a travel claim, the moment the insured is delayed at the airport for over six hours, that should be fed to the banks which will make immediate payment.”
 
   Concurring on the need for advancements, Mr Newman touched on the sore reality that the reputation of insurance was still “not good” and said: “It is the poor claims experience which drives a lot of that negative attitude towards the industry. A good experience for efficiency, processing speed and claims would drive behaviour and high penetration rates over time.” Noting that there was a positive evolution in personal lines and motor, he said: “It is still uncertain how far the corporate, reinsurance and treaty space could shift, though there are definitely lessons these sectors could adopt.”
 
A whole new world of change
Mr Gourlay summed up the fundamental impact of disruption: The post-loss indemnity product and annual policy would probably come to an end. Insurers can hang on to this as long as they can but over time, “we’ve got to be ready to change the whole nature of the product and solution that we bring.” 
 
   Digital needs to start from the customer experience and claims, though it can later be extended to some other functions like digitising the human resource processes.
 
The penetration gap
On the famous penetration gap which still exists in Asia where insurance has not kept abreast of GDP growth in some pockets of the region, there was a positive take.
 
   Ms Kelly said that places where a protection gap exists could in fact offer amazing opportunities. In markets with virtually no insurance penetration, technology was a panacea. “Technology could provide unique ways on how we fundamentally assess and appraise risks and not just help us build sustainable industries in these countries, but really help communities,” she added with an upbeat note. She challenged the insurers at the roundtable as established incumbent players to set the leadership to embrace, invest and experiment (in new technology).
 
Fostering talent and diversity
Touching on the dire needs of the day in terms of talent shortage, Ms Kelly counted on digitalisation and innovation as key forces in fostering talent. Insurers need to tackle the problem of not being a top career choice of the younger generation. “Partly it’s because we don’t have a modern, attractive proposition to counter the perception that we are an old industry,” she added. “Use tech to pique the interest of the younger professionals. Tech can also be used to foster diversity as it enables the industry to embrace flexible working and disability.”
 
Hopes for the future
Mr Garrison said that Asia is a “spectacular environment to operate in”, characterised by the fastest growing middle class in the world and greatest need for infrastructure investment. This offers tremendous potential for the insurance industry, which needs to attract and retain more skilled workers in order to maintain growth. The evolution of technology combined with new distribution ideas from the industry’s young talent could be “an excellent development”. 
 
   Mr Yeo noted that the banking providers’ fortunes are tied with the industry, and its goal is to remain relevant in the context of digitisation and disruption, to be able to grow and find new ways to engage clients, collect premiums, make payments, and in certain instances, to be able to lead in some of these initiatives.
 
   He highlighted that generating sufficient investment returns is increasingly challenging given the current low interest rate environment. Decent investment yields help buffer the bottom line when claims are high for that year. Therefore, investment is an area where banks spend significant time with their insurance clients. 
 
   Mr Newman has a positive long term view of operations in Asia, though in the short term he is doubtful. “We’re in for a painful period. Hoping for a hard market is not a strategy. We’re all going to continue to have to hunker down for a while because there is too much capital in the region. Many products are still seen as a Return on Investment insurance as opposed to risk transfer.” 
 
   The roundtable, moderated by Sivam Subramaniam, Editor-in-Chief of Asia Insurance Review did have a positive message that the insurance industry was dynamically mindful of challenges and was on its toes and heels to cope with the needs of the day. But as the challenges were coming from the “known knowns”, the “known unknowns” and the “unknown unknowns”, being in the business of managing risks is the tallest order of the day. 
 
   Insurers are being bombarded by changes from within in the guise of operational efficiency, their buyers with ever increasing exposures including cyber risks, changing regulations and compliance rules and external adventurers and friends including InsurTech and technology. But insurance will always be needed. Without it, the economy would come to a standstill. A 
 
To find out what participants thought about cyber insurance, 
visit www.asiainsurancereview.com for the rest of the roundtable discussion.
 
Regulation can help the industry
 
On the wish-list for regulators in the region, the Roundtable felt that there should be more consistency and liberalisation with Singapore being suggested as a good role model for the region.
 
   Mr Mark Mitchell, Regional CEO Asia, Allianz Global Corporate & Specialty (AGCS), said he would welcome increasing solvency across Asia and more consistent standards. Certain regulators are more pro-business than others. He sees the MAS as being a good example of that, taking on more than a governance role to encourage the industry’s development regionally. 
 
   Mr Mark Lingafelter, Asia Pacific Managing Director, QBE, noted the diversity of regulatory frameworks in Asia, such as how some are only taking very first steps to move to a risk-based approach. But fundamentally, he noted all insurers prefer to operate in a market where there are professional and consistent standards, where capital requirements are adequate for the risks carried. 
 
   Ms Angela Kelly, Singapore Country Manager, Lloyd’s Asia, said that the region would benefit from having a more liberalised approach across borders, which would contribute to geographic spread in each area of expertise, leading to healthier markets in future. Some lines, especially, should be more liberalised than others. Marine is a global industry that is fairly liberalised, and cyber risks, given that they can happen anywhere in the world, should get a similar approach, she said.
 
Greater interaction with regulators 
Dialogue among regulators has increased, said Mr Michael Gourlay, CEO, MSIG Singapore. But they also need to learn to look at market changes like digital from the end customer point of view when setting regulations.
 
   Insurers operating on certain platforms may not be able to start distribution in other markets due to regulatory barriers – which may be good for consumer protection in the short term but not in the longer term. This was an example of the need for regulators to adapt to an outside-in view just as the industry has had to adapt.
 
   Direct dialogue with the regulators is still important, said Mr Lingafelter, and QBE’s board members engages them in almost every single market. “And in some markets, we’re seeing the regulator now take things to a different level – they’re trying to reach out to non-executive Directors to establish a dialogue. So I think the dialogue is pretty robust,” he said.
Regulation cycle
 
Risk management in Asia Pacific: On par?
 
Mr Mark Lingafelter, Asia Pacific Managing Director, QBE, noted that Asia does not have as many dedicated risk professionals as the US. Many wear “two caps”, though the situation is changing, he said. And while insurers at the table emphasised building the ideal tripartite relationship among risk managers, brokers and insurers, most of the relationships with the buyers are still broker-controlled.
 
   Mr Michael Gourlay, CEO, MSIG Singapore, said besides the unique case for Japanese insurers where significant commercial insurance distribution is direct to insurer from client, he still sees that risk managers will choose to deal through brokers. Many Asian conglomerates in Philippines, Indonesia and China use captives. So it would be the Chief Risk Officer or someone in that capacity who would be insuring their risks through captives and reinsuring it to the rest of the market.
 
   Mr Mark Newman, CEO, Sompo Canopius Asia Pacific, Middle East and North Africa, said Australia is an example of a country in the region with more dedicated risk managers. “Increasingly across North Asia, the risk management community is growing, especially in the big organisations in Japan and Korea, which is reflective of the industry in many parts of Asia and will continue to grow. Concentration of assets will come, and will continue to drive risk awareness,” he said. 
 
   He added that nonetheless, there has to be a good tripartite relationship among carrier, broker and client, which is an “evolution that will take some time”.
 
Changing relationship with buyers
Mr Mark Mitchell, Regional CEO Asia, Allianz Global Corporate & Specialty (AGCS), said that brokers are nowadays less protective of client relationships, even encouraging insurers to have meetings with them. This provided opportunity for client feedback, such as a comment he had from a risk manager that cyber should be coupled with reputation management services.
 
   The fact that at most forums, risk managers are saying they need help with emerging and new risks, not products sold for the last 20 years, means that insurers can find more opportunities going forward and broaden their risk appetites with new programmes, said Mr Gourlay. But the strength of the three-way relationship is shown during difficult claims, where brokers, rightly, can be a point of differentiation in overcoming the difficulty of a non-standard product, said Ms Angela Kelly, Singapore Country Manager, Lloyd’s Asia.
 
   Mr Mitchell said: “If you approach the client trying to sell something, you might be told to speak to that broker. If you approach him trying to understand the risk emerging from the business and work with him, you’re going to get a much better response. So understanding the business is an important place to start.”
 
Timing of engagement
For Mr Benjamin Yeo, Managing Director, Financial Institutions Group, DBS Bank, he said timing could affect how insurers engage a buyer.
 
   “Companies have different renewal cycles. If the carrier or broker knows it’s close to renewals, then their timing of engagement could fit in nicely. So when to have the conversation with a buyer is crucial considering that people work to a timeline.”
 
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